How to create a budget:
- Create a budget spreadsheet or use a budgeting app
- List and calculate all your (net) income
- List and calculate estimated expenses
- Fill in your monthly expense
- Evaluate your spending habits
- Set goals that you can track
1. Create a budget spreadsheet or use a budgeting app
I’m tempted to type “duh” because this is an obvious step right? There’s no way to have a budget without actually creating “the place” where you’ll detail your income and expenses. Choose a tool that’s easy to use and accessible. Some people run from the very idea of spreadsheets, but a tool with rows and columns to arrange data is just fine. I’ll advise you not to use a pen and paper for this because the day it goes missing, you’ll have to start over. Better still, we have created a simple workbook you can use for your budgeting needs.
Click here to download the Budgeting Workbook.
2. List and calculate all your (net) income
If you’re a 9 to 5er, your salary is one income stream to take down. However, do not stop there. List EVERYWHERE you’ve made money from in the past few months – side business, monthly vex money from parents (assuming you’re a trust fund kid), etc. However, if you earn only from your salary, then that’s fine, state just that.
3. List and calculate estimated expenses
Your budget should include EVERYTHING you remember that you normally spend money on. Leave nothing out, not even what you spend N5 on (if there’s any such item available in this x3 economy.)
After making the list, put in an estimate of what you think you spend on each item. This is to determine the average monthly costs for each expense.
Calculate the difference between your income and expenditure
This is a crucial step in creating a budget – calculating the difference between your income and expenditure. If when you’re done, your expenses are way less than your income, then you’re at a good stop. When I created my first budget, my estimated expenses were higher than my income so I knew I had to adjust. Remember, you want to increase the gap between your expenses and your income. The wider the gap, the more funds you’ll have left to save or invest.
Separate your expenses into fixed and discretionary categories
Fixed expenses will include things like transportation, debt, feeding, rent, light bill, etc. These are essentials. Discretionary expenses will include things that are important to you but that are not as important as your fixed expenses. For example, this can include monthly movie dates, travel plans, etc and they can be delayed. However, delaying your feeding, debt repayment (if any), rent, or light bills will ultimately end in tears…
4. Fill in your monthly expense
This is different from the previous point where you estimate what you used to spend on an item. Here, you have to fill in every penny spent monthly in your budget. The table below is an example. You can download the Budgeting Workbook here.
| Expense | Amount (N) |
| Transportation to and fro the office | 25,000 |
| Feeding | 50,000 |
| Data subscription | 15,000 |
| Urgent 2K to younger bro | 2,000 |
| Total | 92,000 |
I’ve found that what works best is to fill this in daily, or at the latest early the next day. This is because there’s only so much the brain can take. Documenting this daily will ensure you don’t forget any item, which will in turn give you accurate numbers at the end of the week or month – depending on the timeframe you want to follow. Also, divide these expenses into cash and bank debits for even more accuracy.
5. Evaluate your spending habits
Now that you’re filling in your daily expenses, you need to understand that that’s only a means to an end. The end here is to improve your financial habits. After one week or one month, evaluate your budget and spending habits. What have you spent the most on? Why? Were there many impulse purchases on your expense list?
Evaluate! Evaluate! Evaluate! After this, you can then move on to the next and final step in budgeting.
6. Set goals that you can track
Now that you’ve evaluated your spending habits and rated yourself Excellent, Good, Average or Poor (does this remind you of Primary School?) You then need to decide on what to double down on and what to stop. Set specific goals and keep track of them.
For example, a goal of yours might be to reduce how much you spend on new clothes each month (if you spend a lot) and increase how much you give to causes that matter to you. In a few months, you can track if you’ve stuck to the goals you set after evaluating your spending habits.
What information do you need to create a budget?
- Income
- Black tax
- Debts
- Savings plans
- Assets/Investments
- Insurance
- Groceries
- Electricity bill
- Entertainment costs
- Eating out
- Transportation
- Travel
Why are budgets so important?
They help you to:
- Know how to manage your money effectively
- Gain clarity about what’s required for your financial plan
- Track if you’re sticking to your financial goals
- Adequately prepare for projects/plan for the future (If a close friend’s wedding is in 5 months, instead of waiting till then, you can begin budgeting and keeping aside a certain amount towards Aso-Ebi and wedding gifts. That way, you’ll not have to spend too much from your salary in the month of the wedding itself. You get?)
- Monitor your financial performance (Is it excellent, good, average, or poor?)
- Imbibe better money habits (and cut out bad ones like impulse buying)
- Organize your spending and reduce/eliminate unnecessary expenses
- Validate or invalidate your assumptions (For example, you might think you spend more on transportation than feeding, but creating and sticking to a budget will help confirm if that’s true)
Watch this video on how to create a budget
Download the workbook here 👈
Easily organize your income and expenses on a single sheet and make your finances easier to understand at a glance. The workbook will help you make sense of your finances and act as a guide on how to allocate your funds.
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I really want to control my finances. I envisage that I have a great tendency of making money and mismanaging funds. Most times I run out of money before the month ends and I feel terrible about it.
Hi Sonia.
Thanks for your vulnerability.
We provide a lot of financial education guides on our blog that can help you better control your finances.
Take it step by step and you’ll do better in now time!
What about school fees, health , charity and insurance.
school fees, insurance, and health can be placed in that friend’s wedding column as talked about in the article, t its all about understanding the main idea, looking within yourself where does this item fall, it’s about been creative and manageable with your money, i.e how long money stays in our hand using it effectively.
thanks a lot,Ope.really helpful,sometimes we outline the fixed and forget the discretionary ,and wonder how alll the money disappeared .This is very insightful
I look forward to more articles from you guys, random articles on various life topics. I love the active voice you used in writing and that sacarsm part too?
Thank you! We look forward to having you back here too ?
This is really amazing and educating! Keep it up and thank you so much for THIS ARTICLE ?
Our pleasure ?
Hello Ope,
This piece is quite insightful and helpful. Thank you. I Read the part where you advised to not document budget on a book as one can lose the book. Can you recommend an app on playstore one can use?
Yes. I’m seconding this comment. I believe an accounting application can help. I actually document my expenses daily but combining them into a general heading is a big task.
Please help us, Ope.
Hi Glow, I can’t recommend any tool off the top of my head right now, but creating a simple Google sheet or excel file for your budgeting can work.
I have a challenge, am the one catering for the house so most times I run into debts because expenses are higher than income . please how do I work on this.
thanks
Okay, Ope, you got me on with this one! ?
I know I make a lot of money as a full-stack digital marketer, but after some time, I’m broke and I’m wondering how come? As you said, I’m wondering “where did all the money go to?”
Sha, this post is very helpful and I’ve just downloaded this app I want to make use of in listing out the entire process… but quick ??
Which app or tool would you recommend for proper budgeting and evaluation?
Regards,
Sam
Hey Sam, happy to hear you found this helpful! ?
For the tool to help with budgeting, I highly recommend that you get down to do the “dirty work” first by yourself. Create a sheet on Google Sheets or Excel to input and track your spending to give you a raw idea, and then you can use other tools for lighter budgeting work based on the idea you now have from your sheet.
Hi Glow
You can download money manager on playstore, that’s what I use. There are others there too
I spend close to 38,000 only
Hi Sam,
I found it fascinating when I had to keep track of my sister’s account, but tracking my own expenses or developing a personal budget appears to be an impossible feat.
I mean… I don’t have a stable source of income yet so it seems almost hard to do but then after going through your write up I wrote a few ways in which I get money and am hoping I’d be able to get an hang of it soon.
Thanks for the detailed explanation.
Ope rather not Sam, sorry.
Wow! This is great, learnt a lot
Thank you so much for sharing this, Ope.
I have a question though. How can I budget as a student?
Because it seems like I can’t apply the whole concept of budgeting in my life at the moment.
I mean, I am a student, I don’t have a fixed source of income; I receive allowance from my parent and sometimes from relatives. I also do not work and I have no investments.
Sometimes, I feel like financial plans and budgeting is just not for me, even though I’m quite interested in them.
Like when I even receive my allowance, the rate at which the money finishes fast, makes me ask myself, “How?” “Where did all the money go to?” and “What did I spend the money on?”
I want to know how to track my expenses, save effectively and if possible invest and then build a financial plan, even as a student but I don’t know how to go about it neither do I know what to do.
So, if there’s any advice you could give me, please do. I’m very ready to learn.
Also, thank you so much for your financial lessons. I am always happy when I see your blog updates in my email. Thank you!?
This is very insightful and educative. I will make a do with this tips immediately. Thanks immensely Ope.
This is helpful I learnt a lot as a young graduate budget helps in build Future occurrences coming in the future also helps to pridict a lot of plan that u ought to achieve
Thanks Ope for this rich enlightenment.
But I got to ask you a question.
What if you don’t get an income per say but, a kind of allowance that’s not stable that you’ll have to ask before its been given to you. How then do you plan a budget given such instance?
Thanks for this wonderful post of yours.It is more encouraging.
Dear Ope,
Thanks for this insightful write up. I am definitely practicing this starting now. This is just what I needed to hear at this time. Thanks again
Really amazing thanks alot for this
I need withdraw
Thank for this wonderful post of yours. It is more encourage
I need withdraw
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Alisabiu744@gmail.com
This article came in on time. Am guilty of many of the bad money management stated in the article. Not withstanding, it is not too late to start. I will be better equipped for the remaining part of the year and next year as well. Thanks Ope
Ope thanks for this powerful awareness, pls if the is an app I can use for something like this let me know. I should start taking records this month
Mohammed
How can I do this
Thanks very much Ope. I always enjoy your post they are enlightening.Talking about budgeting how can one who’s money doesn’t come in bulk monthly go about making and achieving his or her budget.
I can control my financial status on my own. Because I really feel to be financially independent, on the basis of personal interest, and growth. Thank you so much.
Hi Ope,
Thanks for the blog,
I am currently working and I don’t earn enough. Also, I have to settle bills at home and help the family.
I find it hard to save, any advice on this?
Thanks for this piece, I really needed it to start my next month.✨
Thank you so much Ope. We shall do this
Cowrywise has really helped me to everyone more and spend less
I wish it will not crash
Thanks so much. This is an eye opener. I always wondered why I’m left with nothing at the end of the week/month/year after making so much money. Please, do cowrywise have a budgeting app that could be helpful.? It’s important